Royal Bank of Scotland makes Q2 profit of $409 mln

[August 06, 2010]  LONDON (AP) -- Part-nationalized Royal Bank of Scotland said Friday it made a profit of 257 million pounds ($409 million) in the second quarter, due to large one-time gains, although losses from bad loans increased.

Results for RBS, a once-swaggering giant which became the biggest British casualty of the credit crisis, were boosted by gains of 1.05 billion pounds on redemption of own debt and the bank's participation in the government's Asset Protection Scheme, a program to help lenders deal with bad loans.

In the second quarter a year ago, RBS lost 140 million pounds. The bank's second-quarter profit also more than reversed the first-quarter loss 248 million pounds, yielding a net profit of 9 million pounds in the first half.

Revenue of 7.9 billion pounds was up from 6.8 billion pounds a year ago but down from 8 billion pounds in the first quarter of this year.

Chief Executive Stephen Hester proclaimed the bank on the road to recovery, but far from the finish.

"The rebuilding of RBS is a marathon and not a sprint," Hester said, adding that "the economic and regulatory environment has the potential to delay or inhibit progress."

Impairment losses increased from 971 million pounds in the first quarter to 1.1 billion pounds in the second quarter, which RBS attributed to a few single-name impairments in its Global Banking and Markets unit and further deterioration in the commercial property portfolio of its Ulster Bank subsidiary.

RBS shares were up 3.1 percent 53.6 pence as trading opened on the London Stock Exchange.

Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers, said the share price has gained 60 percent in six months and is above the theoretical break-even level on the government's investment.

However, "the general market view is that holders of the stock should continue to do so and, secondly, that investors looking to enter the U.K. banking sector can find better prospects elsewhere in terms of both income and capital growth," Hunter said.

Ian Gordon, analyst at PNB Exane Paribas, said the RBS share price was largely up with events; "Indeed, it appears relatively expensive in comparison to Barclays."

Barclays, which didn't need a bailout, on Thursday reported a 29 percent rise in first-half profit.

The government saved RBS from collapse during the credit crisis, and holds 68 percent of the ordinary shares.

Revenues for Global Banking & Markets, the investment banking unit, were down 31 percent compared to the first quarter as the sovereign debt crisis unsettled the market. Operating profit of 2.5 billion in the first half was 44 percent below a year ago.

RBS has cut employment numbers by more than 22,000 as it restructures.

The bank shed 20 billion pounds of assets in the second quarter. Earlier this week it announced it had agreed to sell 318 branches to Banco Santander, which will earn RBS 350 million pounds when the deal is completed late next year. On Thursday, RBS said it had agreed with Aviva PLC on a new distribution arrangement for insurance products, and it booked a loss of 235 million pounds in the second quarter for the termination of the existing joint venture.

On Tuesday, the Financial Services Authority fined RBS, and its subsidiaries NatWest, Ulster Bank and Coutts & Co., 5.6 million pounds for having inadequate controls to prevent breaches of sanctions against terrorist groups and others listed by the government.

On Friday, RBS disclosed that the FSA is investigating sales by Coutts & Co. of investments in a fund run by American Life Insurance Co. between 2001 and 2008, when it was a unit of bailed-out U.S. insurer AIG. AIG sold ALICO to MetLife in March.

The FSA confirmed that it was investigating, but it and the bank gave no details of the issues being probed.

[Associated Press; By ROBERT BARR]

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